Self-Assessment For Cab Drivers – A Complete Guide
If you are a self-employed cab driver and have a steady income flow, it is important to complete the self-assessment tax return process to declare earnings to the HM Revenues & Customs (HMRC) department. Even if you have rented the taxi from a fleet using a dispatcher, HMRC will consider you as an independent contractor. However, in both cases, you are eligible for certain deductions on your taxes. It is important for every cab driver to know what allowances are available to them or otherwise, they would end up paying more than what they should.
This guide provides comprehensive information on self-assessment for cab drivers – How much tax I have to pay? What allowances and expenses am I eligible to claim? How to submit self-assessment tax return to HMRC?
How Much Tax Should I Pay?
Before applying for self-assessment tax return, it is crucial to calculate how much tax you should pay on your income. For cab drivers, you are liable to pay tax on any profit earning from your income which is exclusive of personal expenses and allowances. The amount of tax payable by a taxi driver depends on the tax band you fall into.
The income tax rates for 2018-2019 are:
- Taxable income of £0 to £46,350 (low rate tax band) = 20%
- Taxable income of £46,351 to £150,000 (high rate tax band) = 40%
- Taxable income of over £150,000 (additional rate taxpayer) = 45%
Your annual profit is calculated as below:
Annual Profit = Total Annual Income – Any Deductible Expenses
For self-employed, tax amount is always calculated on annual profit and not on total annual income.
As per 2017–2018, a tax waiver is applicable on the first £11,850. This means if your annual profit is £15,000, the total tax payable = (£15,000 – £11,850) x 20% = £630.
Cab drivers are eligible for certain allowances and tax reliefs that you should know before submitting your self-assessment. Additionally, it is also important to provide all proof of expenses so that they do not get accounted in your total income. And remember, higher the income flow, greater the tax amount you have to pay.
What Tax Deductions I am Eligible for?
As a private cab driver, it is vital to know what tax deductions you are eligible for and what allowances you can and cannot declare when submitting your self-assessment tax return. Here is a quick guide for you:
- Any expenses that are related with running your taxi: As a professional taxi driver in the UK, you are eligible to declare any type of cost that is related to running your vehicle. This may include the cost of petrol or diesel, repairs and servicing of the vehicle, annual road tax and MOT test, parking and toll fees, and the cost of cleaning and washing the vehicle.
- Fees associated with your vehicle: If you have purchased the taxi using a bank loan or personal loan, you can claim the interest payable on the loan as your expense. Vehicle insurance cost and AA/RAC membership can also be declared as eligible expenses. If you are subject to any registration fee related to your taxi, such as license fees, you can claim the same as well.
- Capital allowances: When declaring your self-assessment tax return, you can claim for capital allowances on the cost of the vehicle at the rate of 18% per year. You can also declare other assets that may be used for running the taxi business.
- Capital allowances for cabs bought on hire purchase: If you have bought the taxi on hire purchase, the capital allowance on the cost of the vehicle, interest payable and other charges are also eligible for income tax deductions.
- Office and administration costs: If you have a taxi business of your own and operate it from an office, you can claim the costs associated it as your business expenses. Cab drivers get a tax deduction on declaring such costs with adequate proofs. If you use your personal home as office, you can claim a segment of this as rental cost. Other related expenses include accountancy fees, advertising or utility bills used for taxi business purpose.
You can calculate vehicle running cost or mileage cost using HMRC’s Fixed Scale Mileage Rate. Currently, the rate is 45p per mile for the first 10,000 km travelled and 25p per mile thereafter. This also includes any depreciation cost associated with the taxi.
It is mandatory to provide proper proof of expenses and allowances to declare the same when filing self-assessment for cab drivers. All these expenses should be deducted from your total annual income to derive your annual profit on which a certain taxable percentage is applicable.
How to File Self-Assessment for Cab Drivers?
Discussed here are the steps to file your self-assessment tax return:
1. Register for Self-Assessment
To file tax return, you have to first register with the HMRC by filling out a form. You can complete details and registration form here.
Registration for submitting tax return can be done online. On successfully submitting the form, HMRC will send you a 10-digit Unique Taxpayer Reference (UTR) which will be used for all future interactions.
2. Sign Up for Self-Assessment Online Service
Use the UTR and other information to sign up for HMRC self-assessment online service. If you are already an existing user, use your account details to sign in and file your tax returns.
3. Submitting the Self-Assessment Tax Return
Fill up the tax return form properly, attach all proof of expenses and allowances, and submit it to HMRC following the end of the tax year. If you choose to submit the return on paper, the deadline is 31st October subsequent to the end of the tax year. If you choose to file online, the last date of submission is 31st January subsequent to the end of the tax year.
Filing the first self-assessment tax return can be extremely daunting for cab drivers. The entire process is pretty complex and lengthy. Having a professional accountant or tax advisor can help you complete the tax return process in a hassle-free manner and on time. They comply with HMRC guidance and legislations and know well how to help you save tax. Seek expert advice to get long-term tax benefits.